Two weeks ago, I read How to Get Rich in American History. It’s a history book that describes the strategies Americans used to create wealth and improve their financial position over 300 years. One concept that got me thinking was from Chapter 2, “Fast Time, Slow Time.”

Roughly, the idea is that fast time and slow time are just what they sound like. During slow time, life moves at a steady pace. Change happens slowly, making it easy to digest. Fast time is the opposite: Life, or aspects of life, move rapidly. Change happens at lightning speed.

The author of the book applies this idea to the accumulation of wealth: Slow time is following a steady approach to accumulating wealth. Think of working for the same company, learning a skill, and saving money for a decade or two. Fast time is taking an accelerated approach to accumulating wealth. Think of opening a business at the right time, when demand from potential customers is high, and the business producing a life-changing profit for the owners after one or two years.

This got me thinking about things that affect change and the rate of change.

A major factor is that change is sometimes random. Life is unpredictable, and you should expect some curveballs. Who had a global pandemic on their radar in January 2020?  

When the rate of change and randomness are at normal levels, we’re in slow time. The change that we experience doesn’t feel like it alters life much. It feels manageable. Think 2019.

When the rate of change and randomness are elevated, we’re in fast time. The change feels extraordinary or life-altering. Adapting to this level of change can be difficult. Think 2020 and COVID-19.

Life isn't stable; it can change suddenly. You have to expect both slow change and rapid, surprising change. This being the case, how have people leveraged both slow time and fast time to accelerate their progress?

The author made a great point:

Those who can live in the present while building in the expectation for change —even if they aren’t always sure just how or when it’s coming—have a leg up on those who presume the brave new world of tomorrow will actually arrive tomorrow (or, on the flip side, never).

My take is that many people who realize outsize gains during fast time do so because they positioned themselves well during slow time. They planned for change and took steps during slow time that would give them an advantage when (or if) change occurs.

In the book, Norman McGhee is a great example. For 10 or 15 years, he studied business from the bottom up, despite racial headwinds. By his mid-thirties he was worth very little, but he understood business. When the Great Depression hit (fast time), many people lost their homes. McGhee, leveraging his knowledge of business, bought 100 foreclosed homes, which he turned into rentals. He borrowed 100% of his costs and banked on the homes’ values rising. McGhee knew a business opportunity would present itself to him one day, and he wanted to be prepared to act decisively when it did. This investment helped McGhee become one of the most prominent black businessmen of his era. His success in real estate allowed him to break the racial barrier on Wall Street and become one of the first black stockbrokers.  

Change often begins slowly and then takes off, seemingly all at once. During slow time, spotting that change or at least understanding that the future will look different than the present in unanticipated ways is key. If you can do this, you can plant seeds during slow time that will produce an excellent harvest during fast time, when rapid change occurs.

A few weeks ago, I came across a podcast in which a history professor turned real estate investor shared what he’d learned from researching 300 years of Americans climbing the economic ladder. He spent over 10 years reading history and trying some of the strategies himself. He shared everything in his book, How to Get Rich in American History, which I read last week.

There are lots of good takeaways in this book. One of them is that most financial advice we think is timeless hasn’t held throughout history. Today I’ll share the seven strategies that Americans used throughout history to get ahead:

1. Built their own business
2. Took a large income in someone else’s business
3. Combined several small incomes to create excess income
4. Invested extreme portions of their income
5. Leveraged a high-payout opportunity with debt or risk
6. Invested steadily over a long period of time
7. Married well

Number 6 is valid, but timing matters because the stock market has had terrible periods. So, as much as timing the market is frowned upon now, history says you should time it when you use strategy #6.

These strategies are pretty straightforward. Using a combination of them intelligently is how people got ahead in life over the last 300 years.

I caught up with a friend this past week. He’s considering making an investment. He shared his thinking and asked me if I thought it was a good investment.

I told him I had no idea. Partly this was because I’m unfamiliar with the asset class, but more fundamentally it was because he said nothing about what he thinks the asset is worth today. I heard only about the price the seller wants.

Investing, in my opinion, is all about buying something for less than it’s worth. An important distinction is between price and value. Price is what you pay for the asset. Value is what you get. If you pay more than the asset is worth, it’s not such a great investment. To be a good investor, you have to be able to use your judgment to determine an asset’s value. There are lots of ways to do that. But if your analysis is thorough and you buy for less than value…you have a good chance of making a good investment.

Ever since I read Dangerous Dreamers last year and learned about the insight that led to Michael Milken creating a high-yield bond market, I’ve been curious about bonds. Wanting to understand this asset class better, I’ve bought several books, including a biography of Bill Gross by Mary Childs, The Bond King.

Today I learned more about bonds from an unexpected person: LeBron James. Bloomberg reported that James used a sophisticated strategy to borrow several hundred million dollars. LeBron has made almost $600 million in NBA salary (source), and he also has other revenue streams, including sponsorships by Nike and other companies.

James’s income from those non-NBA sources runs through his company, King James Funding LLC. In 2018, to get cash up front, King James LLC issued ~31-year bonds. Those bonds paid an interest rate of 4.8% and aren’t due until 2049. The total bond purchase by investors was reported to be almost $300 million; it isn’t clear whether that was the total amount sold over several years or the initial amount sold in 2018.

So why did this catch my eye? LeBron James basically borrowed several hundred million dollars backed by his future non-basketball earnings (and likely some assets too). He accomplished this by having his personal company issue bonds that were bought by insurance companies.

I think it’s an interesting case of a private company using future revenue streams to raise immediate capital. I’ve been thinking about bonds in relation to public companies, but this has me thinking about them in relation to private companies too. I definitely want to learn more about LeBron’s deal structure. Hopefully I can find public filings that shed more light on the bonds he issued.

A few days ago, I shared that the NBA’s Los Angeles Lakers are being sold for the second time in a year. This time, they’re being sold for $12.5 billion, up from $10 billion last year. There are lots of reasons for that transaction that have come to light since the news broke (see here). But it feels like the pace of deals to buy controlling or minority stakes in professional sports teams has accelerated rapidly in the last few years.

That feeling was reinforced today when it was reported that the NFL’s Atlanta Falcons are selling 10% of the team at a valuation of $10.6 billion to Arctos Partners, a private equity firm owned by KKR (see here). It’s a minority stake, so Arthur Blank will still have the majority stake and control of the team. It’s not a bad return considering he bought the entire team in 2002 for ~$545 million. But the trend of ownership stakes in sports teams changing hands continues.

As ownership moves from individuals and families to private equity, I wonder if that will have an impact on how teams are run or if more financial data about teams will become public. I’m curious to see how this plays out.

Yesterday I posted about how a friend built an AI Chief of Staff for himself (see here). Another thing we discussed was application software and its vulnerability to AI. My friend is technical by training and understands the underpinnings of both technologies better than I do, so I was curious about his take.

He didn’t hold back. He predicts that in two or three years, many paid software applications will begin to be replaced by free software written by AI. As AI improves, he thinks it will empower the normal person to create software that solves their specific problem extremely well (better than current paid application software products). His big point is around context. Right now, for AI to correctly build what you want, you must give it the right context and instructions. If you’re not technical and can’t instruct AI on what tools to use and how to use them to build what you want using the right approach, it will build something bad. But if you’re like him, your instructions are great and it will write the software you want in 10 minutes.

Think of it in terms of building a house. Right now, AI is the general contractor. It can build whatever you want. But to understand what to build, it needs to work with plans drawn up by an architect. Imagine just giving a general contractor a description of what your home should look like. Would it build what you envisioned? No chance.

My friend’s point is that in two or three years, you won’t need a background like his or the ability to instruct AI. You won’t need the architect. AI will be so good that it will have enough context to build what you want straight out of the gate. AI will become the general contractor and the architect all in one. When that happens, it will be hard for application software companies to retain and attract new customers.

This was an interesting take. It’s definitely something I want to digest and think more about. I appreciate my friend sharing his take; I always learn a ton when we chat.

Last summer, I shared my views (see here) on the then-record sale of the NBA’s Los Angeles Lakers for $10 billion. I’d read the biography of Jack Kent Cooke, a publishing and cable entrepreneur who owned the franchise before the Buss family, so I was interested in the transaction. Jack bought the team for $5.17 million in 1965 and sold it, another team, and real estate to Jerry Buss for $67 million in 1979. Forty-six years later (last year), the Buss family sold the Lakers to finance entrepreneur Mark Walter for $10 billion.

Today I learned that the Lakers are being sold again, this time for $12.5 billion to former Disney CEO Bob Iger and venture capitalist Josh Kushner (see here). That’s over $2 billion more than Walter paid roughly a year ago.

It’s interesting that a storied franchise like the Lakers didn’t change hands for decades and then went through two ownership changes in about a year. I doubt this will become the norm for professional sports teams, but I’m curious about whether we’ll see any reaction from other team owners, players, or fans.

As I shared yesterday, I read The Bond King, a biography about famous investor Bill Gross and the investing empire he built with PIMCO. Two other things stood out to me about Gross’s story that I’ve been thinking about this week.

Even though he founded PIMCO, Gross wasn’t an entrepreneur. He started PIMCO as an experiment within the insurance company he was working for in the 1970s, Pacific Mutual Life Insurance Company. Pacific Mutual gave him and a few others $5 million to test out their bond strategies. By taking the intrapreneur route, Gross could enjoy a comfortable salary, not spend months or years trying to raise money from LPs for a fund, and use the resources and infrastructure of his employer. PIMCO made Gross a billionaire even though he wasn’t an entrepreneur and his risk was significantly reduced.

The other thing that stood out to me was the culture at PIMCO. It was sharp-elbowed and competitive, which helped them for decades. They pushed the boundaries, and it doesn’t sound like it was a fun place to work. It was an intense pressure cooker that paid extremely high salaries. People hated it, but they couldn’t leave. The culture Gross created ended up being a big part of the reason he was forced to leave abruptly.  

Bill Gross and the PIMCO story are fascinating. He’s a super-eccentric guy. He accomplished a lot, but his eccentric ways had many downsides.

Last week, I read The Bond King, a biography about Bill Gross and how he built PIMCO into an investing powerhouse. Gross is an eccentric character, which was one factor that contributed to his downfall and exit from PIMCO. But one thing that stuck with me was that he used a similar strategy to several other prominent investors who founded their own investing firms.

I wrote about this a few weeks ago (see here). Gross was early to understand that the 1970s high-inflation environment and subsequent decline meant that there was an opportunity to generate outsized returns by buying and selling bonds more frequently. This was different than the traditional “buy a bond, lock it in a vault, and collect your income coupons.” He wanted to trade bonds instead of just buying and holding them. This was novel at the time, and there weren’t other players doing this, so he essentially had the entire market to himself.

Gross found a small, inefficient market with no competition. He generated outsized returns there, then moved to larger, more efficient markets as his capital base grew. It’s the same playbook that others like Ed Thorpe, Warren Buffett, and others also used.

When lots of smart people land on the same strategy to achieve outsized success, that’s not a coincidence.

One thing I’ve noticed over time is how some of the smartest investors achieved outsize success early in their careers by starting out in small, inefficient markets. They took this approach because smaller markets have fewer players (specifically, big-money institutions). When they found an undervalued opportunity, the upside was often larger because it was mispriced to the downside. Those asymmetrical opportunities allowed them to turn a small amount of capital into a large amount of capital at a faster rate. At that point, they then usually entered larger markets. A few notable people I’ve read about used this strategy.

One of my favorite books is the autobiography of Ed Thorp, A Man for All Markets. It’s a combination biography and framework book that’s full of little hacks for navigating life. Thorp realized that equity derivatives (warrants and options) were new and nobody could figure out what they were worth. A mathematician, he used his training to create a formula to price them. He then used that information to buy underpriced derivatives and sell overpriced derivatives, generating outsize returns for decades.

Michael Milken did the same thing with junk bonds in the 1970s and 1980s, becoming the de facto market maker in the infant junk bond market. He helped create bond offerings and sold them to investors. His efforts not only birthed the junk bond market but also helped birth the private equity industry by providing debt for people wanting to take large public companies private.

Warren Buffett did the same with the investment partnership Buffett Partnership Limited from 1956 to 1969, pre-Berkshire Hathaway. He found, OTC, small public companies and some small private companies that were selling for much less than they were worth. He’d buy a huge position and then wait for the market to rerate the public company to true value and sell the private company. When he wound down the partnership in 1969, he’d mostly sold his holdings, except for a few like Berkshire Hathaway.

My takeaway is that it’s often better to start in a small, inefficient market with less competition. After you have some success there, then move to the larger markets where you can now compete better because you have a larger capital base and more experience.